Falling Foreclosure Numbers Real or Fake?

numbers.jpgPeter Viles over at LA Land recently reported on an interesting item – it seems foreclosure rates in California are dropping rapidly because of a new law that requires lenders to actually contact homeowners before preceding with foreclosure filings. He cites data from another website, Foreclosure Radar, showing the effect this new law is having:

Foreclosure Radar reports that the number of notices of default filed in September dropped 61.8% from August levels, and the number of notices of trustee sale filings — which mark the end of the foreclosure process — dropped 47.3% in a month.

While it sounds like a good thing, Foreclosure Radars’ founder makes the case that requiring the notices just prolongs the inevitable, and thereby slows an overall recovery. He also says it makes foreclosures numbers a waste of time for those seeking to understanding the market.

Sean O’Toole, founder of ForeclosureRadar, says the new law has made month-to-month foreclosure statistics “useless in understanding market conditions.”

More, from O’Toole: “We expect SB 1137 to have no long term impact beyond delaying the foreclosure process for homeowners, and slowing the overall recovery.”

The new California law encourages loan modifications as an alternative to foreclosure, a common goal of various government programs. O’Toole, however, is doubtful that loans can be successfully modified on a broad scale in California:

Given the significant negative equity now occurring in most California foreclosures, modifying loans to affordable levels either requires large principal balance reductions or extending the unsustainable teaser rates that created the foreclosure crisis in the first place. Wide scale adoption of large principal balance reductions also pose significant risks, as they are likely to encourage non-defaulting homeowners to default in the hopes of securing similar reductions. As such, either type of loan modification is likely to result in increased default, and/or foreclosure activity in the future, a consequence clearly not intended.

So be warned: A drop in foreclosures doesn’t mean we’ve hit the bottom of the market…just that paperwork is backing things up.

  • http://terrafirmala.com Christopher Hain

    And we haven’t declined everywhere: http://terrafirmala.com/

  • http://countrywide-foreclosures.blogspot.com/ Arash

    Complete false information, foreclosure rates are increasing RAPIDLY especially since July. Buying in this market is madness, prices in So Cal should drop at least another 8-12%.

    19,618 on Countrywide alone compared to 12,800 just in July. That is 50% rise in 3 months!! Once these properties go through auction and not sell and hit the MLS you will see massive drop in prices. Bank CEOs need the bonus so they will drop the properties to show progress.

    http://countrywide-foreclosures.blogspot.com/

  • http://countrywide-foreclosures.blogspot.com/ Arash

    IT is unbelievable how real estate agents try to tell people everything is normal and foreclosure are ending.

    Look at facts and numbers, look at foreclosure count and forget what people say.

    HGX is slowly reaching its 2003 value of about 80. The home prices should fall back to 2003 prices, right before the madness started.

    Good news for home buyers, all they need to do is just wait and buy a better, bigger house with more down payment in the near future.

    Renters are Americans too and they want to buy houses. Why is the public all worried about the 3% homeowners who bought in 2006 madness at outrageous prices or those who refi’d 110% and cashed out hundres of thousands and never paid the bank a single payment with thousands in the bank? (yes you can do that) Now the pour tax payers have to pay the banks?

  • http://countrywide-foreclosures.blogspot.com/ Arash

    by the way, ^HGX can be found here, its an index tracking stock prices for homebuilders:
    http://finance.yahoo.com/q/bc?s=^HGX&t=my&l=on&z=m&q=l&c=

  • nyc2la

    Fake … and the increased number of ‘Existing Home Sales’ is fake too!!!

    Foreclosures are just being delayed for the above reason … ‘and’ … because the Banks are waiting to see what the Taxpayers will offer them!

    If someone bought in early 2006 at $2.0M and still owes $1.8M … the Bank can foreclose. That foreclosure gets counted as an “Existing Home Sale” at $1.8M (making that number fake too), and the Bank then puts it on the market at $1.4M. The Bank losses $.4M, if it actually sells at that price.

    … or the bank can stall the foreclosure by “working with the homeowner” and wait to see what Joe six-pack will pay for it with his taxes once Washington comes to their rescue.

    I am expecting a HUGE dump of homes onto the market after the Bankers open their gift basket from Washington. They will immediately dump the homes that Washington won’t bail-out … and hopefully the games will stop, and price will get back in line with incomes and peoples ability to afford the home … and not this Lottery mentality over the last few years.

  • jan brick

    nyc2la said:I am expecting a HUGE dump of homes onto the market after the Bankers open their gift basket from Washington.

    it won’t be that fast. banks are dragging their feet to avoid showing all the losses at once.

    however, the floodgates have opened again on foreclosures now that the new law has settled in. i subscribe to LA county westside foreclosure notices. this last week, 626 notices of trustee sale were filed for just the west side of LA county.

    don’t believe any spin the real estate industry tells you. foreclosures will continue to increase into 2009 and 2010. in a recession, with a bleak employment outlook, look for housing prices to go back to 2002 or even 2000.